Gov: Blackwell (R) Turnpike Privatization Plan Lambasted by Turnpike Commission Chair and Cleveland Area Leaders
The Chairman of the Ohio Turnpike Commission and elected officials from the Cleveland vicinity gathered last Friday for a press conference outside the Cleveland-Cuyahoga County Port Authority, at which they denounced the plan of gubernatorial candidate Secretary of State Ken Blackwell (R-Cincinnati) to privatize the Ohio Turnpike by leasing it for 99 years.
I brought recording equipment to the press conference and focused on holding the microphone steady with one hand while taking photographs with the other. Having placed the digital recorder in my shirt pocket, however, I managed to bump it and accidentally turn off the recorder after the first speaker. Fortunately, the first speaker was Turnpike Chairman Balog, whose condemnation of the plan from an economic perpective was particularly devastating. For a full transcript of his remarks in Word format, click here. I will summarize his comments below, interspersed with photographs from the event.
Essentially, Balog said that he is against the privatization plan "from an economic standpoint," based on the Turnpike's importance as an "economic wheel for the northern Ohio area." A company that pays the 4 to 6 billion dollars projected by Blackwell to lease the Turnpike for 99 years would need to "maximize their profits." Using 5 billion as an example, a reasonable 5% rate of return would be $250 million per year. The Turnpike's annual budget, however, is only $215 million. "Where do you generate 250 million dollars for the private company that's invested five billion dollars when you only have 215 million dollars worth of income?"
The only possible way to "make the Turnpike an economic, viable investment," Balog said, would be to "increase the rates," and increase them not slightly but substantially. "You have to think about something like three or four times the current rate in order for a company to get a return on their 5 billion dollar investment."
Asked about the example of Indiana, Balog pointed out that Indiana didn't get $5 billion for privatizing their toll road. Ohio presently charges "about 13 cents per mile for trucks," he said. In two years, "Indiana will be at 20 cents per mile, and they'll ultimately be headed up." Balog said that Blackwell has talked about tolls "increasing at the rate at about 3 to 3.5 % per year." Balog pointed out that if rates had been raised by that amount over the first fifty years of the Turnpike, "a truck going all the way across the State of Ohio today would be paying $125 to use the Ohio turnpike," compared to about $30 actually charged today. "If they were paying $125 to go across the state, many of those trucks would not be using the Ohio Turnpike, they'd be on the roads that are parallel to it, they'd be on the private streets." Everyone "would be paying for the maintenance of those streets and there'd be a limited number of vehicles on the Turnpike."
The "whole idea" of the Turnpike is it's "supposed to be a convenient, easy, accessible road, so that the trucks don't go ahead and use the parallel roads and cause problems in the local communities." Balog agreed with the statement that Blackwell's plan is "outsourcing run amok":
I don't think it makes any sense whatsoever. They'd have to continuously increase the rates and they'd have to increase them to the point where there would be significant traffic leaving the Ohio Turnpike and going onto the secondary roads that are running parallel.
The criticism of Blackwell's plan by these officials finds ample support in a study called "An Analysis of the Proposed Lease of the Ohio Turnpike," prepared in June for The Center for Community Solutions by David A. Ellis, Ph.D., of CCS and Edward W. (Ned) Hill, Ph.D., the Vice President for Economic Development at Cleveland State University. That study found that contrary to Blackwell's prediction, "the market price of the lease should be in the $2 to $3 billion range," which after the state pays off the nearly three quarters of a billion dollars of outstanding debt of the Turnpike Commission would yield "cash available to Ohio for capital investments" only in the "$1 to $2 billion range," and that's without taking into account the cost of rebuilding the turnpike two to three times over the life of the lease. In their conclusion, the authors state:
[T]the only way that a private firm can operate the highway and make a profit while improving the economic returns for Ohio's citizens is if the turnpike authority makes extremely high profits, operates extremely inefficiently, or is loaded with inefficient patronage. The private firm would make its money by getting rid of these inefficiencies. If the turnpike is well run, a private vendor will have difficulty squeezing a profit out of the lease. Unless the private company sees an opportunity to charge monopoly rents through ever‐increasing tolls. Even if the vendor increased tolls at the maximum allowable rate, required maintenance of the road will erode any potential benefit. It would seem the only reason to lease the asset, given our analysis, is an ideological drive to shrink the size of government.